IAASB Clarity 10-08

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The International Auditing and Assurance Standards Boards

(IAASB) Clarity Project is nearing completion, drawing to a

close IAASBs 18-month program to comprehensively review

all o its International Standards on Auditing (ISAs) and Inter-

national Standards on Quality Control (ISQCs) to improve

their clarity and, thereby, their consistent application.

December 2008 Completion

To date, the IAASB has approved 33 clarifed ISAs together

with clarifed ISQC 11. O these, 22 have been approved or

release by the Public Interest Oversight Board (PIOB) and 12

are to be submitted to the PIOB or its approval in December

2008. Only three ISAs, including a new ISA on communicat-

ing defciencies in internal control, remain or approval by

the IAASB in December or submission to the PIOB in Feb-

ruary 2009. At the completion o the Clarity Project, all o the

ISAs will be drated in accordance with the IAASBs Clarity

conventions subject to a single statement o authority.

The completion o the Clarity Project will result in many

improvements to the ISAs. These improvements go beyond

the enhancement o the understandability o the ISAs

through the application o the new Clarity conventions they also include substantive changes to approximately hal

o the ISAs introduced through their revision. These revi-

sions were in progress or nearly complete when the Clarity

Project began. The IAASB deerred their nalization, how-

ever, so that the revised ISAs could be redrated in accor-

dance with the new Clarity conventions and thereby allow

all claried ISAs to come into eect at one time subject to

a single statement o authority. This approach refects the

act that the ISAs are very much interrelated, and thereore

need to be considered in their entirety in order to obtain

the ull benets o the improvements arising rom theClarity Project.

All 36 clarifed ISAs come into eect or audits o fnancial

statements or periods beginning on or ater December 15,

2009.2 A signifcant number o the clarifed ISAs include,

as a result o their revision, substantive new requirements

that aim to improve practice in a variety o respects.

The IAASB has agreed, subject to any unoreseen circum-

stances, not to issue any additional standards that would

become eective in the next two years. This responds to

requests the IAASB has received rom stakeholders or a

period o stability in the standards as jurisdictions ocus on the

important task o implementing the clarifed ISAs and ISQC 1.

Implementation Considerations

Many national standards setters, legislators, regulators and

oversight bodies, IFAC member bodies, and accounting

rms have been ollowing closely the development o the

ISAs, contributing to the process by commenting on expo-

sure drats and preparing or the new claried ISAs. Many

have begun their review o the changes arising rom the

revision o some o the ISAs (made available by the IAASB

as they were nalized), and have made substantial progress

in updating their national material. They will, thereore, be

well placed to consider adoption or convergence plans that

maximize the implementation period or those responsibleor training and or auditors. Nevertheless, all those with

responsibilities relating to audits o nancial statements

need to consider implementation issues as soon as practi-

cable, and to set in motion plans to ensure that audits are

eectively carried out under the claried ISAs or nancial

statements or periods beginning on or ater December 15,

2009, which in many cases will be nancial statements or

calendar year 2010.

The importance o successul implementation cannot be

overstated, and the level o eort or successul implemen-

tation should not be underestimated.

While specic implementation considerations will vary

by jurisdiction and depend on which ISAs are currently in

IAASB CLARITY PROJECT UPDATE

InternatIonal audItIngand assurance standards BoardI A A S B

OCTOBER 2008The IAASB is an independent standard-setting board of the International Federation of Accountants.

1 ISQC 1 (Redrated), Quality Control or Firms that Perorm Audits and Reviews o Financial Statements, and Other Assurance and Related Services

Engagements.

2 The eective date or the claried ISAs was announced in October 2007.

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orce, there are some general considerations that may be

relevant to all those responsible or successul implementa-

tion o the ISAs. These include:

National Standards Setters, Legislators and

Others Involved in Setting Standards

Finalizationofadoptionandconvergenceplans,

including process and timetable considerations,

such that the implementation period or auditors

is maximized

Finalizationoftranslationactivitiesandrelated

timetables

Developmentofimplementationguidancerelevant

to the particular jurisdiction, where considerednecessary

Communicationofnationalprocessesandtimetables

so that auditors may plan implementation with

certainty

Regulators and Oversight Bodies

Finalizationofapplicableregulatorystatementsor

announcements

Development,orupdating,ofinspectionoroversight

policies, and related internal training programs

IFAC Member Bodies

Development,orupdating,ofcontinuingprofessional

development courses

Developmentofotherrelevanttrainingmaterials

Updatingofrelevantprequalicationprograms

Accounting Firms and Audit Practitioners

Reviewofrmssystemofqualitycontrol,auditmeth-

odologies, manuals and sotware

Development,orupdating,oftrainingprograms

Updatingofauditprogramsandprocedures

The IAASB strongly urges immediate consideration o

implementation issues. It reminds users that compliance

with ISAs may only be claimed when the auditor has com-

plied with all currently eective ISAs relevant to the audit.

Availability o the Clarifed ISAs

The fnal set o clarifed ISAs will comprise 36 ISAs, including:

OnenewISA,addressingcommunicationof

deciencies in internal control;

16 ISAs containing new and revised requirements (these

are reerred to as revised and redrated ISAs); and

19ISAsthathavebeenredraftedonlytoapplythe

Clarity conventions and refect matters o general clar-

ity only (these are reerred to as redrated ISAs).

An overview o some o the main changes to the ISAs arising

fromtheClarityProjectappearsattheendofthisUpdate.

Recognizing that the processes o translation, adoption and

implementation require access to the approved text o the

claried ISAs as early as possible, the IAASB has made the

claried ISAs available on its website as soon as practicable,

as ollows:

AllclariedISAsapprovedbytheIAASBandthePIOB

(Final ISAs)3 are available on the IAASB website.4

These are accompanied by sta-prepared documentsexplaining the basis or IAASBs conclusions on mat-

ters raised on exposure.

ClariedISAs,andclariedISQC1,approvedatthe

September 2008 IAASB meeting are also available on

the IAASB website.5 These documents are subject to

approval by PIOB o due process applied, which is

required beore an ISA can be regarded as nal, and

are made available or inormation purposes only.

Claried ISAs approved at the December 2008 IAASB

meeting will also be made available on the IAASB

website approximately two weeks ater that meeting.

InternatIonalaudItIngand assurance standards Board

3 A nal ISA may give rise to conorming amendments to other nalized ISAs. Any such conorming amendments are indicated in the ISA which gives rise

to them. The ISAs a ected by the conorming amendments have not yet been updated to refect those amendments. The IA ASB will update t he ISAs or these

conorming amendments ater its December 2008 meeting.

4 See http://www.iac.org/IAASB/Resources.php

5 See http://www.iac.org/IAASB/Meetings/Resources/143/Updated+Agenda

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In December 2008, the IAASB will review all the claried

ISAs or necessary conorming amendments and matters o

general consistency. Any such changes are not expected to

change the substance o the ISAs already approved, althoughthey may have a small eect on their content. To assist those

that have already begun the process o adopting or translat-

ing the nalized ISAs, all changes will be shown in marked

text and made available on the IAASB website.

The IAASB plans on publishing the set o claried ISAs

in IFACs 2009 Handbook of International Standards on

Auditing and Assurance, expected to be released in April

2009. The Handbook will include an updated Glossary

o Terms or the ISAs bringing together the denitions

included in individual ISAs.

The IAASB is condent that the clarication o the ISAs

will contribute signicantly to enhancing the quality and

uniormity o practice worldwide, and that it will assist in

the adoption o the ISAs around the world and acilitate

international convergence. The IAASB is very grateul to

all those who have contributed to the process.

Looking Forward

The IAASB must now look to projects on other important

topics that have been postponed due to the Clarity Project.

These and other important initiatives are set out in IAASBs2009-2011 Strategy and Work Program.6 Nevertheless, the

IAASB appreciates the chal lenges that will be aced as

jurisdictions implement the claried ISAs. It will, thereore,

also consider what might be done to urther awareness

about the new claried ISAs, and to educate auditors and

others about the new standards and the eects they will

have on practice.

About the IAASB

The objective o the IAASB, an independent standard-

setting board within the International Federation o

Accountants, is to serve the public interest by setting high

quality auditing and assurance standards and by acilitating

the convergence o international and national standards,

thereby enhancing the quality and uniormity o practice

throughout the world and strengthening public condence

in the global auditing and assurance proession. The PIOB

oversees the activities o the IAASB and, as one element othat oversight, establishes the criteria or its due process and

working procedures.

For more inormation about the IAASB, visit its home page

atwww.iaasb.org.

Key Contacts

John Kellas, IAASB Chairman

([email protected])

Jim Sylph, Executive Director, Proessional Standards

([email protected])James Gunn, IAASB Deputy Director

([email protected])

6 The IAASBs Strategy and Work Program, 2009-2011 is available on the IAASB website under Resources.

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All ISAs contain certain improvements arising rom IAASBs

Clarity Project. Broadly, these include: Identifyingtheoverallobjectivesoftheauditorwhen

conducting an audit in accordance with ISAs, setting

an objective in each ISA, and establishing an obliga-

tion on the auditor in relation to those objectives;

Clarifyingtheobligationsimposedonauditorsby

the requirements o the ISAs and the language used

to communicate such requirements; and

Eliminatingambiguityabouttherequirementsan

auditor needs to ulll.

The ISAs also have a new structure whereby Introductorymaterial, Objectives, Denitions (as applicable), Require-

ments, and Application and Other Explanatory Material

are presented in separate sections in an ISA, which together

orm the complete ISA.

ISA 200 (Revised and Redrated)7 set out the conventions

ollowed in the standards and the obligations o the audi-

tors who ollow them. Among other matters, it clarifes

that the auditor is required to have an understanding o the

entire text o an ISA to understand its objectives and to apply

its requirements properly. It also explains that, in addition

to objectives and requirements, ISAs contain guidance or

carrying out their requirements. Such guidance may explain

more precisely what a requirement means or is intended to

cover, or include examples o procedures that may be appro-

priate in the circumstances. While such guidance does not

in itsel impose a requirement, it is relevant to the proper

application o the requirements o an ISA. ISA 200 (Revised

and Redrated) also introduces new guidance in relation to

proessional skepticism, proessional judgment, the impli-

cations o the inherent limitations o an audit, and other

matters relevant to the application o the ISAs.

All clarifed ISAs ollow the new clarity structure and have

been drated in light o the obligations and conventions set out

in ISA 200 (Revised and Redrated). The changes to the ISAs,

however, depend on whether an ISA has been revised or newly

developed, or redrated only to apply the Clarity conventions.

New, and Revised and Redrated, ISAs

ISAs that have been revised as well as drated in accordancewith IAASBs Clarity conventions are reerred to as revised

and redrated ISAs. During the Clarity Project, the IAASB

also commenced the development o a new ISA addressing

the communication o deciencies in internal control.

The new, and revised and redrated, ISAs include require-

ments and guidance that aim to strengthen practice in the

ollowing areas:

Materialityinplanningandperforminganaudit,and

its use in evaluating misstatements.

Riskassessment,andthegatheringandevaluationofaudit evidence, in relation to:

3Accounting estimates (including air value

accounting estimates) and related disclosures

3Related party relationships and transactions

3An entitys use o a third party service

organization.

Auditevidenceconsiderationsinrelationto:

3External conrmations

3Written representations (including implicationsor engagement acceptance considerations).

Usingtheworkofothers,inrelationto:

3Audits o group nancial statements, including

the work o component auditors.

3Work o an auditors expert.

Communicationwiththosechargedwithgovernance.

Communicatingdecienciesininternalcontrol.

Auditorreporting,inrelationto:

3Modications to the auditors opinion.

3Emphasis o Matter paragraphs in the auditors

report.

Audit and reporting consideration in the context o

special engagements.

7 ISA 200 (Revised and Redrated), Overall Objectives o the Independent Auditor and the Conduct o an Audit in Accordance with International Standards

on Auditing.

MAIN CHANGES fROM IAASBS CLARITY PROJECT

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Redrated ISAs

For certain ISAs, the IAASB has redrated them only to

apply the Clarity conventions and or matters o general

clarity. These are reerred to as redrated ISAs. In addition

to speciying objectives and denitions within these ISAs

and other drating and structural changes, these claried

ISAs introduce requirements arising rom IAASBs consid-

eration o the present tense in the current ISAs. The elimi-

nation o the present tense improves consistency o practice

to the extent there were dierences in views as to whether

such statements imposed an obligation on the auditor.

The ollowing table indicates the status o the claried ISAs

and claried ISQC 1 as o October 2008.

1 The labeling convention Revised and Redrated and Redrated will be removed rom the title and text o the claried ISAs at the completion o the

Clarity Project.

2 Final IAASB-Approved Drat documents are available at the IAASB website at http://www.iac.org/IAASB/Meetings/Resources/143/Updated+

Agenda, together with conorming amendments, i a ny, aecting other ISAs. These documents show the text o the standard approved by the IAASB and

submitted to the PIOB or approval o due process applied. They are or inormation purposes only.

3 Final ISAs are available on the IAASB website athttp://www.iac.org/IAASB/Resources.php. A nal ISA may give rise to conorming amendments to

other nalized ISAs. Any such conorming amendments are indicated in the ISA which gives rise to them. The ISAs aected by the conorming amendments

have not yet been updated to refect those amendments. The IAASB will update t he ISAs or these conorming amendments ater its December 2008 meeting.

4 The IAASB has not yet approved the nal drats o ISA 210 (Redrated), ISA 265 (New) and ISA 402 (Revised and Redrated). The IAASB is scheduled to

approve these ISAs at its December 2008 meeting.

5

Standard New, Revised and Document Available on

Redrafted, or Redrafted1 IAASB Website

ISQC 1, Quality Control or Firms that Perorm

Audits and Reviews o Financial Statements, and

Other Assurance and Related Services Engagements

ISA 200, Overall Objectives o the Independent

Auditor and the Conduct o an Audit in Accordance

with International Standards on Auditing

ISA 210, Agreeing the Terms o Audit Engagements

ISA 220, Quality Control or an Audit o

Financial Statements

ISA 230, Audit Documentation

ISA 240, The Auditors Responsibilities Relating to

Fraud in an Audit o Financial Statements

ISA 250, Consideration o Laws and

Regulations in an Audit o Financial Statements

ISA 260, Communication with Those

Charged with Governance

ISA 265, Communicating Deciencies in

Internal Control

Final IAASB-Approved Drat2

Final3

N/a Document in progress4

Final IAASB-Approved Drat

Final

Final

Final

Final

N/a Document in progress

Redrated

Revised and Redrated

Redrated

Redrated

Redrated

Redrated

Redrated


New
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ISA 300, Planning an Audit o Financial Statements

ISA 315, Identiying and Assessing the

Risks o Material Misstatement Through

UnderstandingtheEntityandItsEnvironment

ISA 320, Materiality in Planning and

Perorming an Audit

ISA 330, The Auditors Responses to Assessed Risks

ISA 402, Audit Considerations Relating to an

EntityUsingaThird-PartyServiceOrganization

ISA 450, Evaluation o MisstatementsIdentied during the Audit

ISA 500, Audit Evidence

ISA 501, Audit Evidence Specic

Considerations or Selected Items

ISA 505, External Conrmations

ISA 510, Initial Audit Engagements

Opening Balances

ISA 520, Analytical Procedures

ISA 530, Audit Sampling

ISA 540, Auditing Accounting Estimates,

Including Fair Value Accounting Estimates, and

Related Disclosures

ISA 550, Related Parties

ISA 560, Subsequent Events

ISA 570, Going Concern

ISA 580, Written Representations

ISA 600, Special Considerations

Audits o Group Financial Statements(Including the Work o Component Auditors)

ISA610,UsingtheWorkofInternalAuditors

ISA620,UsingtheWorkofanAuditorsExpert

ISA 700, Forming an Opinion and Reporting on

Financial Statements

Final

Final

Final

Final

N/a Document in progress

Final




Final


Final

Final

Final

Final

Final

Final

Final

Final



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Redrated

Redrated


Redrated

Redrated

Redrated



Redrated

Redrated



Redrated


Redrated




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This document has been prepared by IAASB staff. It is a non-authoritative document issued for information purposes only.

ISA 705, Modications to the Opinion in the

Independent Auditors Report

ISA 706, Emphasis o Matter Paragraphs and

Other Matter Paragraphs in the

Independent Auditors Report

ISA 710, Comparative Inormation Correspond-

ing Figures and Comparative Financial Statements

ISA 720, The Auditors Responsibility in

Relation to Other Inormation in Documents

Containing Audited Financial Statements

ISA 800, Special Considerations

Audits o Financial Statements Prepared in

Accordance with Special Purpose Frameworks

ISA 805, Special Considerations Audits o

Single Financial Statements and Specic Elements,

Accounts or Items o a Financial Statement

ISA 810, Engagements to Report on

Summary Financial Statements

Final

Final


Final






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